Fed’s Williams calls for ‘patience and good judgment’ before raising rates

Growing economic headwinds and anxiety about the pace of growth are cause for the Federal Reserve to be cautious about hiking interest rates further, John Williams, president of the central bank’s New York region, said in a speech Friday.

Williams, who is a voting member of the policymaking Federal Open Market Committee, reiterated recent calls from other Fed officials that suggest a less aggressive approach to rate hikes in 2019 after a year that saw four quarter-point increases.

“The approach we need is one of prudence, patience, and good judgment,” he told bankers at a forum in Somerset, New Jersey. “The motto of ‘data dependence’ is more relevant than ever.”

Investors grew skittish over signs of an economic slowdown and worries that the Fed would make a policy mistake by continuing to raise rates on a preset course. However, in recent days Chairman Jerome Powell and a number of other central bank officials have emphasized the importance of data in the timing of hikes.

For his part, Williams said he still expects a “strong” and “healthy” economy that will grow between 2 percent and 2.5 percent this year.

“That’s a step down from 2018, but still consistent with a healthy, growing economy,” he said.

Williams added that the Fed also needs to keep an eye on how its balance sheet reduction program is going. The Fed is allowing a maximum of $50 billion in proceeds from bonds it holds to roll off each month while reinvesting the rest.

Some market participants have complained that the process also is causing market disruptions. Williams said his review of Fed action will include “the path of balance sheet normalization.”

“Data dependence applies to all that we do. And, as always, if the outlook deteriorates in a material way, we stand prepared to deploy all our policy tools as appropriate in support of the economy,” he said.